Despite the fact that the economy has been in recession for some time now, deposits in financial institutions have nevertheless grown at 3.7% (to $10.1 T) over the last year. Credit unions have beaten this national average with shares growing 5.8% (to $679.4 B) since third quarter of 2007, pushing credit union market share up 13 basis points to 6.71% of total US deposits. The collapse of IndyMac and Washington Mutual caused deposits in thrift to plummet 23.4% over the same period; this flight of funds was also a contributor to credit union share growth. But let’s get a little more specific.
Source: Peer 2.0
Of the $37 billion increase in shares, $18.4 billion—49.7% of total growth—has come from money market accounts. This represents a remarkable 16.6% increase over the last four quarters, bringing the total amount in money market accounts to $129.2 billion. Meanwhile, regular shares grew at 3.4% and share certificates grew 4.0%. Over the past year, we’ve seen a notable increase in average money market balances—up 5.6% or $1,072—paired with a 68 bp rise in penetration—to 8.31%. Combined with a 1.5% increase in overall membership, we can see what is driving money market growth.
Share certificates less than a year in maturity, on average, make up approximately 70% of all share certificates. The past two quarters have seen negative growth for certificates less than a year and for total certificates. Members appear to be looking short-term liquidity and finding in money market accounts.
Over the past year, credit union share rates have declines across the board, with regular share rates falling 25 bps, money markets 67 bps, and certificates 125 bps. The gap between the average certificate and money market rates have narrowed from 2.01% to 1.39%, robbing certificates of some of the rate-advantage. Meanwhile, money market rates—averaging 1.84% in 3Q08—are closing in on the regular share rate high of 1.39%. For members who keep a significant port of their money in share accounts, the slumping rates may have been a catalyst to shift funds to higher yielding money markets. The rate shift could easily explain the increase in average money market balances.
Not only are money market accounts apparently becoming more attractive compared to other credit union options, they are more attractive in the context of the financial market. As of late, more risk-averse investors have shied away from the stock market since the insurance for deposit accounts has increased to $250,000.
Source: Peer 2.0, Federal Reserve
Using the effective Federal Funds rate as a benchmark for yields on savings and investment instruments, we can see that credit union money market funds are gaining a competitive edge that they have not had in recent years. In September of 2006, the gap between the effective fed funds rate and the average money market rate was 3.09%. Last quarter, the gap was down to only 19 bps. Credit unions have been able to maintain stable rates compared to the industry at large. During the past year, money market accounts have become more attractive, meaning that members are more likely to invest with credit unions rather than other savings and investment instruments.